And then the market fell….

Twitter It!

 

Let me tell you, it’s not pretty sitting in front of the quote machine, these days.

I have been wanting to write this blog for quite some time, because like every other investor I am clinging to the sense of hope as I am looking for a bit of positive news.

 

On the equities side, financial companies are slammed daily with severe losses due to their sub-prime exposure. The bottom line is that many homeowners can’t pay their mortgage, so essentially not only are they facing the reality of potentially losing the biggest investment of their life (and if may add, their cash cow for the last few years) but they will not be so “quick” to pull the trigger when it comes to spending their “hard earned” dollars on frivolous things. Of course, I don’t need to remind everyone that this is a “consumer driven” economy?! If that’s the way to ensure “growth”, then let’s try and put some more “borrowed” cash into our beloved consumers to postpone the inevitable failure of this house of cards.

 

Are we in a full blown recession?, I don’t know! Looking at TV these days, does not help either. You have an economist who is a contrarian and another one who states facts, so go figure….BUT, the reality is that there is going to be another wave of mortgage holders whose rates are going to be reset and companies taking a huge hit because of irresponsible mortgage brokers, who sold unfit mortgage products to customers who really did not understand the burdens of an ARM mortgage.

 

I truly do not want to be the bearer of bad news, nor do I believe that during these days one should be glued to the TV.  What’s the point?

 

I really want you to understand how this highly volatile environment affects trading and trading decisions:

 

1)     Systems that are based on long term trends will rarely perform well during “choppy” periods.

2)     Stops losses will get triggered on either side whether long or short

3)     Technical indicators will mislead

4)     There are many abrupt reversal throughout the day; case in point, as I am writing this article the Euro went from high of 1.4853 to a low of 1.4587 and is currently trading at 1.4669. It takes a strong heart to weather these types of swings.

 

The bottom line is this: Every trader needs to wait until things resume to normal and be patient enough to catch the next trend in a given market. The bottom line is that a market needs to trend, and not only trend, but trend steadily and slowly.

 

It might not be easy looking at your trading results these days, but let me tell you, it’s not easy on us either.  Keep in mind a few other things:

 

1)     Seasonals, mechanical trading programs, directional based trading, or volatility trading have a difficult time through these periods

2)     ALL systematic programs will go through drawdowns during periods of turbulence such as the present

3)     The majority of discretionary traders tend to freeze and stay away from the markets until the picture gets clearer and brighter.

 

In conclusion I would like to say that times like these are an inherent part of life. They test and make us stronger (hopefully) to weather future storms.  And I mean this not only as a trader but as a member of the human race. Everyone of us has strengths and weaknesses; let’s capitalize on our strengths and better ourselves and re-evaluate what has worked and what has not in the past. Happiness, health and abundance are our birthright; we just have to claim them ours.

 

Matt Zimberg

President

Optimus Trading Group